MGX Resources Limited (MGX) Earnings Call Transcript & Summary

Thank you for joining today's teleconference for the release of Mount Gibson Iron's December 2023 Half Year Financial Results. Mount Gibson's, Chief Executive Officer, Peter Kerr, will be leading the discussion; and is joined by Chief Financial Officer, Gill Dobson; and External Relations Manager, John Phaceas. Mr. Kerr will provide a brief overview, after which there will be an opportunity to ask questions. Due to time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will be available via the Mount Gibson website shortly after completion of today's teleconference. I'll now hand you over to Peter. Thanks, Peter.

Thanks, Lisa. Good morning all, and thank you for joining us to discuss Mount Gibson Iron's results for the December 23 half year. As usual, I'll give a brief overview and then hand back to Lisa for any questions. And as also, as usual, any dollar references that I state are Australian dollars, unless otherwise indicated. So from an overall perspective, as you will have seen, the business delivered a strong financial performance in the 6 months to the end of December. And as we benefited from previous investments that have been made at Koolan Island in overburden removal, plant upgrades and the bill of high-grade stockpiles. We achieved record first half ore shipments totaling 2.5 million wet metric tonnes, grading at over 65% Fe and that compared with 1.1 million tonnes in the preceding corresponding half year. These sales and a substantially lower waste-to-ore stripping ratio together delivered a lower unit cash operating cost, while at the same time, we also benefited from generally higher iron ore prices and a weaker Australian dollar exchange rate. Consequently, ore sales revenue almost tripled to $432 million FOB while our average cash operating cost reduced to $59 per wet metric tonne shipped FOB, and that's before royalties and capital projects compared with $80 per tonne in the prior corresponding period. The strong performance delivered $196 million increase in our cash and investment reserves over the 6 months to $358.5 million at the end of December with no outstanding bank debt. On a group basis, this translated into a net profit after tax of $138.7 million, which also included a pretax gain of $35.9 million on the July 23 sale of the company's Mid-West assets that we've already talked about a number of times. The bottom line result was a significant improvement on the $7.4 million NPAT recorded for the prior corresponding half year. Koolan Island is obviously the key driver of our performance. And for mining, the waste-to-ore strip ratio reduced as planned to average 0.7 tonnes of waste for every tonne of ore compared with a ratio of 3.5:1 in the prior corresponding period. And total material movement reduced by 60% to 3.4 million tonnes of western ore combined. Mined ore totaled just under 2 million tonnes, sourced primarily from the western and central areas of the main pit with the western end expected to reach its planned final depth sometime in the June quarter of this year, at which point, production will transition to the shallower eastern half of the pit. Processing rates increased with the main plant supplemented by contract or mobile crushing to work through the stockpiles and oversized material. Process tonnage totaled 2.3 million tonnes in the half year compared with 1.5 million tonnes in the prior corresponding period. As we noted in the December quarter activities report, we also recently committed to an add-on tertiary crushing circuit to the main plant at a cost of approximately $8 million to enable the efficient and more cost-effective processing of harder oversized material that we expect to receive from the central and eastern sections of the ore body. That circuit is expected to commence in April. From a mining perspective, the main challenge came from the previously reported rockfall, which occurred in a section of the eastern footwall in the main pit, and that was back in August last year when we announced that. That area has been cleared and an exclusion zone maintained beneath it. The affected area will be bypassed for at least the duration of the current wet season to enable any impacts of the rains that we're receiving to be observed before proceeding with proposed remedial ground support activities. Production from higher benches in the eastern end of the Main Pit, therefore, being brought forward and we'll provide further updates in due course regarding our remediation and mine sequencing approaches as we finalize that heading into the dry season. From a financial perspective, the Koolan Island operation generated strong cash flow of $244.5 million in the half year, compared with a cash outflow of $25.2 million in the previous corresponding period. The site recorded a profit before interest and tax of $144.2 million in the half year period, and that compared with a profit of $19.8 million previously. Koolan Island's unit cash operating costs were AUD 59 per tonne sold FOB, so that's at Koolan Island in the half year before royalties and capital projects, as I mentioned, and that was in line with our guidance and reflected the significantly reduced waste stripping activity and increased shipping volumes in the period. This compared with $80 per tonne sold FOB before the inventory build and major project costs and royalties in the prior corresponding half year period. The lower cash costs in the half year just gone have enabled Koolan Island to achieve a very strong cash margin of AUD 97 per tonne shipped. We completed 33 shipments in the half year, and our guidance for the year ended 30 June 2024 factors in a reduced monthly shipping rate over the current half year period to account for the usual wet season impacts and the mine plan changes. I'll discuss the sales and cost guidance in a bit more detail shortly. I also wanted to note that during the half year, we received the final $2.3 million insurance proceeds of the $10 million property damage claim related to the August 2022 processing plant fire. We also continue to liaise with our insurers regarding a business interruption claim arising from that fire. However, the timing, likelihood and potential quantum of that claim is uncertain at this time. Regarding our Mid-West business, we now ceased, obviously, to report our activities as a separate segment since we completed the divestment to Fenix Resources back in July 23. As already noted, the company recorded a net gain of $35.9 million on that transaction. And since then, we have also received $1.2 million in dividends from Fenix in the half year. As you may recall, the sale delivered us $10 million in cash, $60 million Fenix shares, which gives Mount Gibson an approximate 8.6% shareholding in Fenix, plus 25 million 5-year options in Fenix, half exercisable at $0.25 and half at $0.30. At the end of the reporting period, the value of that shareholding and option holding in Fenix was approximately $18.5 million. And we look forward to working with Fenix and the team there as they seek to expand the company's mining and logistics business in the Mid-West region. Elsewhere in the Mid-West, Mount Gibson has retained its mining and exploration interests in the historic Tallering Peak mining area to the north of which we continue to explore prospective ground for base metals mineralization. And we also still hold the field to find exploration project interest in that area. Mount Gibson has also retained its rights to the long-standing historical rail credit refund, which resulted from third-party use of certain sections of the Mid-West rail network. And we reached our contractual cumulative cap of that entitlement in the 6 months just gone, with the receipt of the final $2.2 million payment to close out that arrangement expected shortly. I'd now like just to briefly touch on market conditions and outlook. The Koolan Island operation in the period obviously benefited from progressively stronger prices and a weaker Australian dollar. The Platts Index price for 62% Fe iron ore fines commenced the period at USD 111 per dry metric tonne, and that's on a cost and freight or CFR basis in China, so it includes shipping freight, and rose during the 6 months to USD 141 at period end, with the average over that period being USD 121. So a fairly strong performance from iron ore prices. Of more relevance to our business, though, the Platts Index for high-grade 65% Fe CFR fines started the half year at USD 123 per tonne, and rose to be USD 151 per tonne by the end of December, with the average for the period being USD 132. It's important for us because that reflected an average grade adjusted premium of 4%. So, not only do we get revenues that reflect the higher grade pro rata, but also an additional 4%, which provides an additional margin for our operation. Shipping freight rates for Koolan Island to Chinese ports averaged approximately USD 13 per tonne shipped in the reporting period. Accordingly, the Koolan Island fines product, grading at 65.4% Fe, realized an average price of USD 116 FOB per tonne. So that's actually at Koolan Island, excluding shipping freight. And that's compared with USD 94 per tonne in the prior corresponding period. Generally weaker Australian dollar also provided additional revenue benefit to the company and it averaged at USD 0.65 in the period and compared with $0.67, so slightly higher in the prior corresponding half year. So as a result, with some divergence of iron ore prices and the exchange rate into late last year, we added to our hedge book, to protect a portion of forecast production in the current half year period, so that's the January to June '24 period. And at 31 December 2023, we had contracts covering 420,000 tonnes at prices ranging between AUD 175 and AUD 195 per tonne CFR. And what that does is protect the substantial cash margin on those hedged tonnages. So in relation to guidance for the fiscal '24 financial year, the focus for the rest of this year is to maintain our operational improvement at Koolan Island and maximize the cash flow and profitability. But also, we are devoting significantly more time to potential new resources investment opportunities, as you expect. For the '23, '24 financial year, we continue to target sales of 3.8 million to 4.2 million tonnes of high-grade iron ore from Koolan, and that's a significant increase on last year at an average site cash operating cost before royalties of AUD 65 to AUD 70 per tonne sold FOB. So we continue to see good demand from our customers for the high-grade material that we produce, particularly with its low impurities, and we're anticipating a solid full year performance. Finally, before we close, I just wanted to note regarding dividends, that in line with the company's stated approach, the Board has resolved to consider the payment of a dividend when it reviews the company's full year financial performance and the franking credit position in August this year. The company is presently utilizing existing carryforward tax losses, which, in gross terms, at 31 December were $114 million, so equivalent to $34 million when tax effected at 30%, and at this point, has negligible franking credits available for distribution. So we expect that position to change heading forward, depending on iron ore prices and our production performance. The position for dividends will be clearly reassessed once the final fiscal '24 results are known. So with that, Lisa, I'll hand back to you for any questions that we may have. Thanks.

[Operator Instructions] Thanks, Peter. There are no questions.

Okay. Thanks, Lisa. Look, we've already taken a number of calls and have a number of meetings lined up today with various of our shareholders. So thank you all to everyone who has attended or has listened to this online, and we wish you a good day. Thank you.